Reflections on a year of war

12 months on from Russia’s brutal invasion of Ukraine, deep changes are underway in the global economic & political system

A year ago today, Ukraine woke to a Russian invasion.  Russia has failed to make much progress, although it has imposed staggering human and economic costs on Ukraine.  In a brave, impressive, and ongoing effort, Ukraine has pushed Russia back.

Opinion is divided on what to expect next: the Russians are throwing masses of mobilised troops into battle, against depleted Ukrainian forces that are being equipped with advanced military equipment.  The next few months as spring arrives will be vital, and my sense is that Ukraine will have the edge.

But the unfortunate consensus is that the war has a way to go yet: ‘victory’ will be elusive.  From the discussions at the Munich Security Conference last weekend, to President Biden’s remarks in Kyiv and Warsaw this week, and Mr Putin’s state of the union speech, there is no backing down on either side – nor any obvious opening for meaningful negotiations. 

Whatever happens, Russia has substantively lost.  It is a diminished economy, a pariah state in the West, with limited strategic options and deep risk exposures.  NATO has strengthened and expanded (Finland, Sweden) and Ukraine will move closer to Europe: the start of a lengthy EU accession process is likely this year.

Beyond this, major structural changes have been unleashed across the global system.  The world after the invasion is a different place than before the invasion: a wartime economy is emerging, driven by big power competition, with accelerating fragmentation of global flows.  The invasion brough the curtain down on the post-Cold War regime, in much the same way as the fall of the Berlin Wall ended a strategic era.

This will be a turbulent process, disrupting much of what we have taken for granted over the past few decades.  It would be nice if this were not true, particularly from a small economy perspective, but this is a time for realism not wishful thinking: less kumbaya, more Lee Kuan Yew.

This note offers some reflections on changes to the global economic and political system that have been generated or accelerated by Russia’s invasion.

The week that changed the world

A year ago, I made the following observations:  

I’m writing on one of the darkest days in Europe for decades, hours after Russia launched a full invasion of Ukraine.  It would be tempting to refer to Ms Merkel’s characterisation of Mr Putin as a man using 19th Century methods in the 21st Century.  Except that the forces being unleashed have an unfortunately 21st Century flavour to them: big powers coercing smaller states, a fragmenting global system, and the weaponisation of international commerce…

Attitudes have been shifting on China over the past few years.  But it is Russian behaviours this week that have crystallised what is at stake.  After a period of tentative Western recalibration over the past several years (some sanctions, decoupling), we are now likely to see a more concerted pushback to the various challenges to the rules-based system. 

As Winston Churchill said 70 years ago after the second battle of El Alamein, ‘Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning’. 

I think that this framing was broadly right: the invasion was a hinge event.